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WWE Victorious

Can shares of WWE help you body slam the market?

Last night, in New York's storied Madison Square Garden, World Wrestling Entertainment(NYSE:WWE) superstars battled in the company's flagship pay-per-view event, WrestleMania XX. Not coincidentally, the very first WrestleMania debuted 20 years ago at Madison Square Garden and across closed-circuit television screens throughout the world. Back then, WWE Chairman Vince McMahon made a huge bet that fans from around the world would pay to see "rasslin'" even if they weren't present in the arena.

That bet paid off in a big way.

The company reports that revenue just from the fans in attendance last night topped more than $2.4 million, with an additional $365,000 coming from smaller events held throughout the weekend. We won't know pay-per-view buy rates for a few weeks, but the company averages about 425,000 buys per event. Being the biggest event of the year, I wouldn't be surprised if they did 700,000 buys for this pay-per-view, grossing $35 million.

No doubt the company will sell WrestleMania XX commemorative DVDs, and THQ(NASDAQ:THQI) will produce the WrestleMania XX video game, putting the value of the event in excess of $50 million dollars. Of course, a good chunk of this will find its way into the coffers of pay-per-view distributors DirectTV, owned by Hughes Electronics(NYSE:HS), and large cable distributors Cox Communications(NYSE:COX) and Comcast(NASDAQ:CMCSA).

While the financial outlook for this year's WrestleMania looks bright, WWE is also losing two of its biggest and most marketable stars in Brock Lesnar and Bill Goldberg. Lesnar is leaving the company to pursue a career in the NFL and Goldberg's contract has expired. The sports entertainment business is all about keeping fan interest. With two of its most marketable stars out of the picture, and a third, The Rock, spending most of his time making movies, it's not clear if the WWE can continue its momentum.

The last six months have been hot for WWE, and the company is on a run rate to earn between $50 million to $60 million. This would put trailing earnings at around $0.75-$0.80 sometime in September, with the company valued at 15-16 times earnings, should the stock price not move. That said, the market is willing to give WWE a 25 multiple right now. If the market is equally generous in six months, we could see this stock at $20, or 58% higher than where it trades today.